The Sacramento Business Journal is making this opinion piece, published in this week’s print edition, available to nonsubscribers because of the broad interest in the topic outside the region.

Stockton is not on anyone’s list of fiscally responsible cities. But if its Chapter 9 bankruptcy proceeds as some experts predict, the city could be a model for getting out of a deep fiscal mess.

First, Stockton’s bankruptcy case is sure to set influential legal precedents with respect to pension obligations. The city owes up to $900 million to the California Public Employees’ Retirement System, which is by far its largest obligation. Under California law it is required to pay this amount and has been doing so even though it has stopped bond payments to other creditors. This has prompted the other creditors to cry foul and accuse Stockton of bondholder discrimination.

If the early volleys in this battle are any indication, CalPERS is in a bind. Presiding U.S. Bankruptcy Court judge Christopher Klein cut right to the heart of the matter in April when he ruled that Stockton is eligible for bankruptcy protection. He cited the exclusive power of Congress under the Constitution to make uniform bankruptcy laws, adding “uniform laws … mean impairment of contracts,” hinting that modifying Stockton’s contract with CalPERS may well be constitutional.

The other bondholders are not after every penny they are owed; they know they will ultimately take a haircut on the bond principal. Their primary objection — and much of the acrimony so far — has been the favorable treatment of CalPERS.

The city of Stockton will have a very tough time presenting a fiscally viable plan that excludes CalPERS at the expense of other creditors. Keeping the runaway train of pension and health-care obligations it owes to CalPERS and retirees is not responsible financial planning. Put another way, punishing other creditors and not touching CalPERS will perpetuate the situation that got it into trouble in the first place.

Willingly or not, Stockton will have to propose a plan that demonstrates some fairness to all the creditors in order to pass muster with Judge Klein — which means CalPERS will join other creditors in taking a cut. If so, this would be the first time a Chapter 9 filing has been used to cut pension obligations.

Legal precedents are powerful and strongly influence rulings in all similar litigation going forward. In many ways, the Stockton battle is a proxy for many other cities stuck in a similar predicament — whether in California or elsewhere in the U.S. It’s no surprise that cities are watching closely.

This leads to another manner in which Stockton can be a model: taking advantage of its newfound unburdened state to attract businesses and residents, as well as expand its tax base. Reducing its pension obligations is critical to breaking the “feedback loop from hell” — a term used by Wall Street analyst Meredith Whitney in her new book, “Fate of the States.”

This feedback loop describes a situation happening all across the U.S. Governments are so cash-strapped they cannot afford to make the necessary investment in infrastructure, education, public safety and other basic public services. They respond by cutting services and hiking taxes. This prompts businesses and wealthier individuals to leave, lowering the overall tax base and revenues, making the problem worse.

Whitney’s book offers both a warning and some hope: cities that break this cycle can finally move beyond just providing the basics and make themselves attractive to businesses, which bring jobs.

Here Stockton can take some inspiration from another entity that survived a near–death experience and is on the mend: General Motors. Of course, GM’s 2009 bankruptcy was very different than Stockton’s (and it was essentially a bailout by the Obama administration). But GM’s case does share two very important attributes with Stockton. First, soaring pension and health–care costs ultimately pushed GM into insolvency. GM was able to cut much of its other debt through bankruptcy proceedings but only has recently begun to deal with the pension problem.

Interestingly enough, as Stockton was preparing to file for bankruptcy last July, GM was in the process of cutting its pension obligations by 20 percent through a lump-sum payment to retirees. Pensions and related health–care expenses are the biggest non–automotive drag on GM’s balance sheet, and it is finally addressing the problem head on.

Even in the early stages, these efforts are starting to pay off. GM reported solid first–quarter earnings in May, and at approximately $35 per share, its stock is finally trading above its November 2010 IPO price of $33. More importantly, investors are enthusiastic knowing that pensions finally will be reduced in a meaningful way.

Another important point Stockton can draw from: GM executives have repeatedly pointed to how this reduced pension drag enables them to be more nimble and competitive by introducing new models and offering incentives to buyers. Similarly, cities often make themselves attractive to businesses by offering tax and other incentives — which is only possible with a healthy balance sheet.

The lesson here is simple: It’s not enough to emerge from bankruptcy hobbled and providing the same diminished public services that already have driven people away. Bankruptcy should signal a fresh beginning — an ability to once again invest heavily in all the things that attract businesses and makes everyone enthusiastic about living and working in a city.